BANK TO PAY $700M FINE OVER MONEY LAUNDERING

The Commonwealth Bank of Australia has agreed to pay the biggest fine in Australian corporate history for breaches of anti-money laundering and counter-terrorism financing laws that resulted in millions of dollars flowing through to drug importers.

The bank will pay $700 million plus legal costs after federal financial intelligence agency AUSTRAC last year accused the bank of serious and systemic failures to report suspicious deposits, transfers and accounts.

As part of the settlement, CBA admitted to the late filing of 53,506 reports of transactions of $10,000 or more through its "intelligent deposit machines" (IDMs).

Banks are required to report these large transactions within 10 business days, so that AUSTRAC can monitor them to see if the money might be going to crime gangs or terrorist networks.

The Commonwealth Bank had originally considered challenging the number of breaches, arguing that a single coding error had led to the failure to report the 53,506 transactions.

However, it later decided to admit most of the alleged breaches and try to reach a settlement.

For a period of three years, the bank also failed to properly monitor transactions on 778,370 accounts to check for money-laundering red flags.

It also admitted that 149 suspicious matter reports were filed late, or not filed at all.

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In addition, the bank breached its obligations to perform checks on 80 suspicious customers and transaction monitoring did not operate as intended on a number of accounts between October 2012 and October 2015.

AUSTRAC's investigation also exposed 14 occasions where CBA failed to properly assess risks related to its IDMs.

While many of the transactions were for legitimate purposes, the bank has admitted that it failed to report "millions of dollars of suspected money laundering".

"AUSTRAC suspects that there was significant further undetected money laundering through CBA accounts that ought to have been detected and reported," noted the statement of facts agreed between the bank and AUSTRAC.

"The money laundered through the CBA accounts included the proceeds of drug and firearms importation and distribution syndicates predominantly involving methamphetamine.

"Criminal syndicates rely upon money laundering syndicates to import and distribute their drugs."

The Federal Court still needs to accept the terms of the agreement, but AUSTRAC has heralded the settlement as a warning to other banks.

"I hope this result alerts the financial sector to the consequences of poor compliance, and reinforces that businesses need to take their obligations seriously," AUSTRAC chief executive Nicole Rose said in a statement.

"We will continue to work collaboratively with CBA as it progresses this work and I am encouraged by the manner in which CBA has handled these negotiations."

Although, in a later press conference, Ms Rose clearly implied that dealing with CBA had not always been easy, something that was also apparent in AUSTRAC's original statement of claim in the Federal Court.

"I think the length of time shows that there were ongoing negotiations," she said.

"The fact that we chose to take the action we did was entirely appropriate to look at … perhaps the lack of action that had occurred over those years.

"But I'd have to say, since starting as CEO of AUSTRAC [in November 2017], my engagement with the CBA senior management has been professional and transparent and that's why we were able to get to the settlement we have today."

The Commonwealth Bank's chief executive, Matt Comyn, acknowledged the seriousness of the breaches and said the bank has so far spent around $400 million trying to fix the problems with technology and people.

"While not deliberate, we fully appreciate the seriousness of the mistakes we made," he said in a statement.

"Our agreement today is a clear acknowledgement of our failures and is an important step towards moving the bank forward. On behalf of Commonwealth Bank, I apologise to the community for letting them down.

"We are committed to build on the significant changes made in recent years as part of a comprehensive program to improve operational risk management and compliance at the bank."

Treasurer Scott Morrison said he warned CBA's chairman Catherine Livingstone last year that the bank had a long way to go in restoring public trust.

"I made it very clear that the Government expected that CBA would be taking action and accountability in relation to restoring trust," he said.

"I think their admissions today, actions that have been taken since that time, and actions planned, provide an indication of CBA doing just that, but, as always, the proof will be in the pudding."

The bank said it will account for the $700 million in penalties in its full-year accounts, but had already provided for $375 million of this in its most recent half-year results in anticipation.

The fine agreed to by the Commonwealth Bank will be the largest civil penalty paid in Australian corporate history, if the court approves it.

The previous biggest settlement for money laundering breaches was a total of $45 million paid by wagering company Tabcorp for 84 failures to report suspicious transactions.

However, both companies could have faced much bigger penalties, with a maximum fine of $18 million per breach.

In CBA's case, the theoretical maximum fine totalled nearly $1 trillion, several times the market value of the bank.

Corporate law expert Professor Ian Ramsay from Melbourne University said such an outcome was never a realistic possibility.

"It would be exceptionally rare for a court to go to the very highest end of a penalty and, indeed, it was always a very real prospect that we would see a settlement in this particular matter," he told ABC News.

Professor Ramsay said it was in the bank's interest to reach a settlement before trial, even if it was costly.

"I'm sure what the bank did not want was a very lengthy trial where every day more evidence is brought before the court and then promptly reported in the media of systemic, serious failings by CBA," he said.

Scott Morrison argued the fine matched the seriousness of the offence.

"We don't operate within a margin of error on this," Mr Morrison said.

"We make sure that where there are breaches, that there should be a very clear understanding that these rules are there for a reason, and whether those rules have been breached intentionally or not intentionally, that the penalty will fit the breach."

While the Federal Court must approve the terms of the settlement, Professor Ramsay said it is rare for the judiciary to change the agreed penalty.

"In the strong majority of cases, the court carefully looks at the evidence and makes its own decision that what is suggested or recommended to it is appropriate," he observed.

Source: ABC News